Legislature(1997 - 1998)
04/24/1997 08:10 AM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
APRIL 24, 1997
8:10 A.M.
TAPE HFC 97 - 112, Side 1, #000 - end.
TAPE HFC 97 - 112, Side 2, #000 - #251.
CALL TO ORDER
Co-Chair Gene Therriault called the House Finance Committee
meeting to order at 8:10 A.M.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
ALSO PRESENT
Senator Bert Sharp; Representative Mark Hodgins; Ken Boyd,
(Testified via teleconference), Director, Division of Oil
and Gas, Department of Natural Resources; Bill Van Dyke,
(Testified via teleconference), Division of Oil and Gas,
Department of Natural Resources; Randy Simmons, (Testified
via teleconference), Executive Director, Alaska Industrial
Development Export Authority (AIDEA), Department of Commerce
and Economic Development.
SUMMARY
SB 13 An Act relating to taxes on cigarettes and tobacco
products, and to the use of the proceeds of those
taxes; and providing for an effective date.
HCS CS SB 13 (HES) was reported out of Committee
with individual recommendations and with a fiscal
note by the Department of Revenue dated 4/07/97.
HCR 16 Proposing recommendations concerning the sale of
the Four Dam Pool hydroelectric facilities.
CS HCR 16 (FIN) was reported out of Committee with
a "do pass" recommendation and with a fiscal note
by the Department of Commerce and Economic
Development.
HB 242 An Act relating to unpaid, underpaid, and overpaid
royalty and net profit share payments due on
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leases of state land and to the collection and
payment of interest on those payments.
HB 242 was reported out of Committee with a "do
pass" recommendation and with a zero fiscal note
by the Department of Natural Resources.
SENATE BILL 13
"An Act relating to taxes on cigarettes and tobacco
products, and to the use of the proceeds of those
taxes; and providing for an effective date."
SENATOR BERT SHARP noted that SB 13 was an education bill, a
health bill and a revenue bill. He provided a sectional
analysis of the bill.
Senator Sharp stated that Section #1 would detail the
legislative intent and purpose of the bill. This section of
the bill directs the cigarette tax be deposited to the
existing "dedicated school fund" and only be used for
rehabilitation, construction and repair of the State's
school facilities.
Section #2, #3 and #4 would increase the tax on each
cigarette by seventy-one cents per pack. Section #5 would
increase the excise tax on tobacco products from 25% of
wholesale value to 75% of wholesale value. Section #6 would
amend the statutes to change the percentage the license
deducts to cover accounting and filing expenses from one
percent to four-tenths of one percent. Sections #7, #9 and
depending on any possible court decisions. Section #8 would
allow for a retroactive fall-back clause to accommodate any
court ordered changes.
Representative J. Davies MOVED to report HCS CSSB 13 (HES)
out of Committee with individual recommendations and with
the accompanying fiscal note. Representative Kohring
OBJECTED.
A roll call vote was taken on the MOTION.
IN FAVOR: J. Davies, G. Davis, Grussendorf,
Martin, Hanley, Therriault
OPPOSED: Mulder, Foster, Kelly, Kohring, Moses
The MOTION PASSED (6-5).
HCS CSSB 13 (HES) was reported out of Committee with
individual recommendations and with a fiscal note by the
Department of Revenue dated 4/07/97.
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HOUSE CONCURRENT RESOLUTION 16
Proposing recommendations concerning the sale of the
Four Dam Pool hydroelectric facilities.
Co-Chair Hanley MOVED that work draft, 0-LS0755\B, Cramer,
4/18/97, be the version before the Committee. There being
NO OBJECTION, it was adopted.
Representative Grussendorf MOVED to adopt Amendment #1.
[Copy on file]. Co-Chair Therriault OBJECTED.
Representative Grussendorf explained that the amendment
would allow Alaska Industrial Development Export Authority
(AIDEA) to be responsible for investments to make the
determination what would be in the State's best interest.
He reminded members that AIDEA generates a $11 million
dollar revenue stream each year.
Co-Chair Hanley pointed out that it was not AIDEA who
originally requested the sale; the Legislature placed intent
language in a previous year's bill. He added, whether it is
a community process or private enterprise, both would need
to come to the Legislature to debate the deal. He believed
that if the communities do not come up with a reasonable
offer, private sector bids should be placed.
Representative Grussendorf referenced a memo sent to Speaker
Gail Phillips by Randy Simmons, Executive Director, AIDEA,
stipulating that if no positive direction had been taken by
July 31, 1997, it was AIDEA's intent to seek other
proposals. AIDEA has already indicated that they will seek
alternative measures. He noted that he had faith in AIDEA,
while questioning the Legislative mandate.
Representative Martin commented that the Legislature should
be the authority that makes the "policy call" whether the
dams are to be sold. At that time, AIDEA can guarantee that
the State receive the best deal.
Co-Chair Therriault agreed with Co-Chair Hanley, elaborating
that the State needs a definite answer. If the proposal
comes back from the utilities and AIDEA believes that it is
not an acceptable arrangement for the State, then the
private sector should be given an opportunity. AIDEA will
have the authority to determine if the proposals are
acceptable and whether they should be submitted to the
Legislature for ratification. The Legislature will control
the final decision.
Representative J. Davies MOVED an amendment to Amendment #1.
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He proposed to delete "that" and "the Four Dam Pool Projects
should be sold", and insert "and request for proposal is
appropriate at that time". That language would require
AIDEA to decide whether or not. An RFP would be
appropriate at that point in time. There being NO OBJECTION
to the amended language to Amendment #1, it was
incorporated.
Representative Grussendorf commented that the amendment
change would allow AIDEA a little more time to evaluate what
the next approach should be.
A roll call vote was taken on the MOTION to adopt amended
Amendment #1.
IN FAVOR: J. Davies, G. Davis, Grussendorf,
Martin, Moses
OPPOSED: Foster, Kelly, Kohring, Mulder,
Therriault, Hanley
The MOTION FAILED (5-6).
Representative Grussendorf MOVED to adopt Amendment #2.
[Copy on file]. Co-Chair Therriault OBJECTED.
Representative Grussendorf explained that at this time,
AIDEA is operating with two ground rules:
* The power sale agreement remain in tact; and
* The State back away and assume no greater
risk.
At this time, negotiations have begun using these ground
rules. He emphasized that the Power Sales Agreement (PSA)
is the most important aspect of the negotiations and should
be guaranteed.
Co-Chair Hanley asked what restrictions had been placed on
the power sales agreement, and if it would be difficult to
relieve the State of it's liability if there were no changes
to that agreement.
RANDY SIMMONS, EXECUTIVE DIRECTION, ALASKA INDUSTRIAL
DEVELOPMENT EXPORT AUTHORITY, noted that it would be
difficult to relieve the State of all of it's
responsibilities. The State could be relieved under the
contracts by selling the facilities. He explained that
Representative Grussendorf's language addressed if there was
a major disaster and the State had sold the dams, would the
buyer come back to the State requesting relief. If a State
entity finances the sale of the utilities, the State
maintains some risk.
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He reiterated the two most important requirements
established by AIDEA are:
* The power sales agreement stays in place
until after the sale; and
* The State be relieved of its risk in the
contract.
Mr. Simmons stressed that AIDEA has never implied that
should a party to the agreement want to amend or change that
agreement, that they could not do it. Instead, AIDEA has
maintained that they want to sell all the dams as a package
rather than selling the two best dams and leaving the State
with the two that have problems. He reiterated that AIDEA
has never said that the private sector could not work with
the utilities to make changes in the PSA.
Co-Chair Therriault pointed out that if the language of
Amendment #2 was adopted, the private sector would have an
unfair constraint. Mr. Simmons noted that a PSA could be
amended by all involved parties.
Representative J. Davies noted that if the utilities agreed
to a change in the PSA, there would then be a new PSA or no
PSA. If a private sector offer comes in and relieves the
State of the PSA, they are picking up the State's obligation
in the PSA. After that transaction occurs, if the utilities
and private entities agree to make the PSA work, the
original contract would be preserved. The State submitting
an RFP suggests that it is not upholding responsibilities
under the PSA. He argued that the State should live up to
their agreement.
Representative J. Davies MOVED to amend Amendment #2 by
adding language "and continue the State's obligation under
the PSA". That language would guarantee that whom ever
takes responsibility would need to maintain the terms of the
agreement. Co-Chair Therriault asked what the directive had
been to the utilities. Mr. Simmons replied that the intent
was that the agreement would remain in place until the point
of sale. AIDEA would request that all contracts in place
now be fulfilled.
Mr. Simmons suggested adding language to Amendment #2, "as
in place today". In response to Representative Therriault,
Mr. Simmons noted that the utilities would not be barred
from participating in an open RFP process. Co-Chair
Therriault suggested that awareness would remove the need
for Amendment #2. Mr. Simmons testified that if the intent
of the Legislative body was not to fulfill the contracts,
but instead put an RFP out to breech it, then AIDEA needs
direction regarding that intent. If that is not the intent
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of the Legislature, that should then be clarified. If the
Legislature does not intent for the contracts to be
breached, Mr. Simmons agreed the amendment would not be
needed. Co-Chair Therriault replied that it was not his
intent nor that of the prime sponsor that the contracts be
breached.
Representative J. Davies WITHDREW the amendment to Amendment
Representative Grussendorf MOVED additional language change
to Amendment #2, adding the language previously recommended
by Mr. Simmons, "as in place today". He pointed out that
HCR 16 is a resolution and all important information should
be indicated.
Representative J. Davies agreed that the amendment was not
technically necessary, but noted that concern exists among
the utilities which has not been addressed in the
resolution. He emphasized that it is appropriate that the
game rules are up front, which they would be with inclusion
of the amended language. There being NO OBJECTION to the
amended language to Amendment #2, it was adopted. Co-Chair
Therriault OBJECTED to the amended Amendment #2. He
believed that language was not needed.
A roll call vote was taken on the MOTION.
IN FAVOR: G. Davis, Grussendorf, Kelly, Moses, J.
Davies
OPPOSED: Foster, Kohring, Martin, Mulder,
Therriault, Hanley
The MOTION FAILED (5-6).
Representative G. Davis WITHDREW Amendment #3. [Copy on
file]. There being NO OBJECTION, it was withdrawn.
Representative J. Davies MOVED to adopt Amendment #4. [Copy
on file]. Co-Chair Therriault OBJECTED.
Representative J. Davies explained that the amendment would
delete the "whereas" section which addresses what the
contracts are worth. He suggested that it was inappropriate
language and could be harmful to the State. Mr. Simmons
advised that a hard and fast number could not be calculated.
The number determined by the sponsor corresponds to a
specific set of circumstances including current repairs.
There are a range of numbers which could determine the sale
price.
(Tape Change HFC 97-112, Side 2).
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Representative Martin suggested that AIDEA be given a
"bottom line" expected price. Co-Chair Therriault agreed
that depending on the parameters used in making the bid, the
value could change. He WITHDREW his OBJECTION to Amendment
A roll call vote was taken on the MOTION.
IN FAVOR: Grussendorf, Kelly, Moses, J. Davies, G.
Davis, Hanley, Therriault
OPPOSED: Foster, Kohring, Moses, Mulder
The MOTION PASSED (7-4).
Representative J. Davies MOVED to adopt Amendment #5. [Copy
on file]. He pointed out that the amendment had been
amended by hand before it was submitted, with a new inserted
date of August 31, 1997, as the drop-dead date.
Co-Chair Therriault inquired if AIDEA had been operating
under the direction of their Board to receive proposals from
the utilities. Mr. Simmons replied that the Chairman of
Board has directed AIDEA to show that there has been
substantial progress in reaching a sales agreement by July
31, 1997, although, the full extent of that determination
has not been clarified. Any sales process will take many
months to a year to complete. At this time, AIDEA is
attempting to receive an agreement in principle.
Co-Chair Therriault asked if the language of the resolution
stipulating that AIDEA would need to receive an acceptable
proposal, covered an agreement of principle. Mr. Simmons
understood that it would. He was not sure that he would be
able to get to the Board by July 31st, which would be a
definite concern if Board action was required.
A roll call vote was taken on the MOTION.
IN FAVOR: Grussendorf, Moses, J. Davies, G. Davis
OPPOSED: Kelly, Kohring, Martin, Mulder,
Therriault, Hanley
Representative Foster was not present for the vote.
The MOTION FAILED (4-6).
Co-Chair Therriault noted that the fiscal note would be $120
thousand dollars funding from AIDEA. Mr. Simmons advised
that AIDEA has not identified how to fund the legislation
because it is not an AIDEA project; it is an Alaska Energy
Authority (AEA) project and they have no funding for this.
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He reiterated, he did not know how to internally address
this concern.
Representative Mulder MOVED to report CS HCR 16 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HCR 16 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the
Department of Commerce and Economic Development.
HOUSE BILL 242
"An Act relating to unpaid, underpaid, and overpaid
royalty and net profit share payments due on leases of
state land and to the collection and payment of
interest on those payments."
KEN BOYD, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION
OF OIL & GAS, DEPARTMENT OF NATURAL RESOURCES, noted his
appreciation for the proposed legislation.
WILLIAM VAN DYKE, (TESTIFIED VIA TELECONFERENCE), DIVISION
OF OIL & GAS, DEPARTMENT OF NATURAL RESOURCES, stated that
the bill would allow the State and the lessees a sixty day
grace period on computing interest and paying interest for
royalties. The legislation would benefit both parties
equally. The grace period would be parallel to current oil
and gas laws.
The bill is designed to increase efficiency on how the
Department of Natural Resources operates by amending the
interest statutes as it pertains to oil and gas royalties.
He added that the bill was only a housekeeping issue.
Representative Martin MOVED to report HB 242 out of
Committee with individual recommendations and the
accompanying fiscal note.
HB 242 was reported out of Committee with a "do pass"
recommendation and with a zero fiscal note by the Department
of Natural Resources.
ADJOURNMENT
The meeting adjourned at 9:25 A.M.
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